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Shipowners equipped to navigate oil spill risk

In an era of increasing regulation aimed at stemming maritime disasters, it looks as though the Oil Pollution Act of 1990 (OPA 90) promulgated by the US, has been a success.

Marilyn Feldman & Jeffrey Fedel   |   11 December 2003

The key mechanism is the certificate of financial responsibility issued by the US Coast Guard, as evidence that a particular ship and the owners have the financial resources to meet liabilities for clean-up costs and damages arising from a spill, up to the limitation amounts provided In the Act and the Comprehensive Environmental Response, Compensation and Liability Act (Cerla).

James Brewer asked two representatives from COFR provider Shoreline Mutual - president Marilyn Feldman and consultant Jeffrey Fredel - how the COFR system, which may be copied by other Jurisdictions, is working and why their organisation chose to work from Bermuda.

Lloyd's List: How has the market for providing certificates of financial responsibility evolved since the early days?

Shoreline: COFR market never experienced the train wreck anticipated in December 1994, and has developed into a professional commercial market of blue- and brown-water guarantors.

Shoreline has evolved from a mutual with mutuality into a mutual that delivers a fixed-cost guaranty. Underwriting control has long shifted from tariff rating to individual underwriting.

Rationalisation and improvement in its reinsurance programme reflect not only Shoreline's liability as guarantor but also ensure that membership-owned structure is not compromised.·

Technology has also changed dramatically over the past nine years, and the ability to keep abreast of and utilise these advances is something that Shoreline is an expert in.

Electronic communication is by far the preferred choice of Shoreline's brokers and members. and It is only a matter of time before electronic correspondence with the US Coast Guard will also be standard practice. Shoreline's database is already capable of this - it literally awaits the green light.

Lloyd's List: What are the main worries for shipowners over COFRs?

Shoreline: In the ever changing and challenging insurance arena, the ticket-to-trade mentality of shipowners is less evident. There is no doubt that September 11 changed the way everyone conducts business; the focus of shipowners and class underwriters on their bottom lines is more reactive and demanding than ever.

Many other issues now face shipowners trading to the US, so the COFR process is now just one of these.

Lloyd's List: What rote Is the US Coast Guard playing these days in monitoring relevant ships?

Shoreline: The Coast Guard monitors all vessels requiring COFRs, as they are now required lo file a 96-hour notice of arrival with the Coast Guard, and the item that port officials use to pre-screen arriving vessels Is the COFR.

The US Coast Guard/National Pollution Fund Centre's searchable database on its website has greatly aided port officials in this regard.

Lloyd's List: Have the heightened emphasis on anti-terrorist security, and the forthcoming ISPS impinged on the COFR exercise? Perhaps COFRs have played a part in reinforcing the security of shipping and ports? Have the criteria for issuing them changed?

Shoreline: No - the field units have always checked COFRs carefully, and never hesitate to contact the NPFC's office if there is a question or discrepancy.

Lloyd's List: What are the advantages of your organisation in operating from Bermuda?

Shoreline: Shoreline Mutual (Bermuda) was Incorporated in Bermuda because of its geographic location and, more importantly, to conduct its business in an acknowledged quality Jurisdiction with its high regulatory standards, sound infrastructure and historical expertise in the insurance industry.

Not only is Bermuda the biggest captive insurance centre in world, but Shoreline is also managed by Shoreline Mutual Management (Bermuda), a wholly owned subsidiary of IAS Park. the largest independent captive management company in the world.

Lloyd's List: How many members and how much gross tonnage are on your books? Have there been any Important changes recently in the services you provide, and are any coming along soon?

Shoreline: We have entered tonnage of 84.3m gt, and it has 1,370 active members. Shoreline's focus is on one product and is responsive to its members' needs In ensuring prompt filing not only of guarantees but also the US Coast Guard COFR applications if members so require.

Shoreline keeps its brokers and members informed regarding any general developments, by circulars and updates on its website (www.shoreline.bm) - for example, advising membership that Shoreline is in compliance with the Terrorism Reinsurance Act and updating its quotations and certificates of entry accordingly.

Lloyd's List: What is the future of the COFR system? Are there any political or industry proposals to modify or reform it, or replace it with another system?

Shoreline: Without a crystal ball, our opinion is that the COFR market in the US will retain the status quo. Whether OPA 90 will also become 'Europa', 'Japanopa' or 'Australopa' is again something that will be as predictable as the uncertain world we live in.

OPA 90 has been, and will be in the future from lime to time, amended incrementally - for example, through the Edible Oil Regulatory Reform act which lowered OPA's liability limits for tankers carrying vegetable oils, and through the current proposal to include in OPA a tender liability exclusion to bring it into line with Cercla.

Lloyd's List: Has the system been a success or otherwise?

Shoreline: There is no doubt that OPA 90 has reduced the number of major oil spills dramatically.

In a programmatic review of OPA provisions, mandated by Congress, COFRs and the liability provisions of OPA were shown to be the single most effective tool in decreasing the amount of oil spilled by ships in US waters.

It is also the only provision where the costs - which have come down dramatically and are a fraction of what was estimated during the rule-making process - exceeded the benefits as opposed to double hulls, for example.

But as with anything, ask different people about OPA 90 and you will definitely get a different response depending on which helm they are steering.